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Equity | September 08, 2023

Understanding Equity heatmaps along with its categories and types

Visualizing market trends is one of the most crucial steps for an investor. Whether you are an intraday investor, options or futures trader, catching the market drift is important. As technology continues to revolutionize the way we analyse financial data, more and more investors are moving towards data analysing tools to interpret market trends more accurately than before, and Equity Heatmaps emerged as one of the most powerful tools for visualizing market trends over the years.

What is an Equity Heatmap chart?

An Equity Heatmap is a visual representation of financial market data, typically in the form of a color-coded grid. You see, a set of grids representing the industry the stock belongs to. Each grid has a set of cells representing the specific stock or index depending on the map you are reviewing. These cells are assigned a colour by the system. These colours represent its performance. For example, green represents the rising price/volume (depending on the map type), and red represents the opposite.

Colour gradient provides a quick and intuitive way to assess the market's health at a glance. Shades of deeper green/red represent the significant gain/loss accordingly, whereas the shades of yellow/grey/orange represent neutral or modest changes. Once you get the gist of the stock/index/industry movement, go for the detailed chart view for a deeper understanding.

Different categories of Equity Heatmaps

Equity heat maps are categorised based on the base parameter. Here are a few types of equity heat maps.

Volume heatmaps: Volumes are an important parameter to see if the stock has gained gradual interest or is just a temporary pump. If you are an investor who judges a stock's credibility from the traded volume, go for the volume heatmaps. The darker the colour, the higher the volume.

Price heatmaps: These types of heatmaps would help you understand the stock/securities momentum for the given time period. Price heatmaps will identify the trends in the stock/security and are helpful in making early decisions.

Order book heatmaps: These heatmaps show the distribution of limit orders for a particular stock or security. The darker the colour, the higher the number of limited orders at that price. Order book heatmaps can be used to identify areas of support and resistance, which are price levels where there is a lot of buying or selling interest.

Liquidity heatmaps: These heatmaps show the liquidity of a particular stock or security. Liquidity states how difficult or easy it is to trade a share/security, which helps in setting a potential stop loss. It helps to stop resting liquidity or open interest. The darker the colour, the higher the liquidity. This heatmap helps the intraday traders the most.

Types of Equity Heatmaps-

Equity heatmaps can be curated according to your needs, mostly. Whether you are investing in stocks or securities, there are various kinds of options available to cater to your requirements.

Nifty 50 Heat Map

The Nifty Heat Map provides a visual representation of the Nifty 50 index. It showcases the performance/price movements of 50 stocks that make up the Nifty 50 index for the selected time frame, such as monthly/daily/yearly, etc. Investors often use the Nifty50 index to get a quick overview of the market, to identify the stocks performing and to spot potential trading opportunities. For them, the nifty 50 heatmap could be an invaluable tool for those.

NSE Heatmap

The NSE Heat map showcases the performance of stocks listed on the National Stock Exchange. It allows investors to track a broader spectrum of assets, providing insights into sectors beyond the top 50. NSE heatmaps are useful to traders trying to understand the market sentiments and looking for opportunities.

Stock Heatmap

A Stock Heatmap allows investors to focus on specific individual stocks. If you're deeply interested in particular companies or industries, this heatmap helps you monitor their performance over the years with precision.

How to read an equity heatmap-

When you open an equity heatmap, you see a set of blocks of categorised industries with multiple cells of the company registered under the said industries. Here are a few details you should be paying attention to while reading the equity heatmaps:

The X and Y axes of the heatmap: The horizontal axis or X axis represents the price of the stock, and the vertical axis or Y axis usually represents the time.

The colour scale: The gradient colour scale represents the changes in trend and data. For example, if a heatmap is using a colour scale of green and red, then green represents the gains/higher value where red might represent the losses or lower values.

The patterns in the heatmap: The patterns in the heatmap can reveal important information about the stock, such as areas of support and resistance, price trends, and liquidity.

In conclusion, equity heat maps are valuable tools for visualizing market trends and making data-driven investment decisions. However, like any tool, they come with potential limitations and risks. By using them in conjunction with other analysis methods and by staying vigilant in monitoring market conditions, you can harness the power of heatmaps while safeguarding your investments. In the dynamic world of finance, staying informed and making timely decisions is paramount to success.

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